HEXT ‘Quantitative’ means the addition of money to the system, typically through the purchase of assets, and ‘easing’ means that the addition of this money to the system is meant to push rates lower.

The other important part is the transmission mechanism of making very explicit that QE is the intention, with the ideal outcome being greater confidence in the economy. The idea is not just to put money into the system but that someone will be borrowing it as well.

KING I think of QE along similar lines. It is a monetary- policy technique that is useful when more conventional forms of monetary policy are at their extremes and the marginal utility of using them isn’t as strong.

I think it has more impact early on. Buying government bonds has proven to be beneficial to growth in other economies, particularly during the early stages. There are examples like Japan, though, that show when QE is done for a very long time without support from fiscal policy or changes to the structure of the economy, this, too, loses its marginal utility.

RANDS I think QE is essentially any asset purchase from government that is designed to expand the money supply.

RANDS The simplest reason for the market picking up on this has been the RBA explicitly saying that negative rates are unlikely but QE is being considered.

When I think about why this is and what the RBA is trying to message, I look at the places where negative rates have been implemented and I see the truly problematic areas like Japan and Europe. By contrast, when I look at QE in countries like the US and the UK, I see jurisdictions that are doing okay and really just need a little more stimulus.

I think the RBA is thinking about the first leg of the policy it would use, which is buying assets. If it needs to do something more, it can take the further step later on.

HEXT It comes down to the problem the reserve bank is trying to address. If the problem is the currency – and we know the RBA is very sensitive to the level of the currency and would like to get this lower – having negative rates would actually help. Lowering the cost of bank funding probably doesn’t help as much. So if the problem is that the currency is too strong I think negative rates will be back on the table quickly.

I think the only reason the RBA has said it is unlikely to use negative rates is because at the start of 2019 the cash rate was 1.5 per cent and negative rates seemed a long way away. At 0.75 per cent, negative rates are getting closer but there is a still a bit of room up the RBA’s sleeve. I don’t think it would rule out negative rates now, but it probably hopes it never reaches that situation.

KING I echo Tim Hext’s thoughts, in the sense that it depends on the problem the RBA is trying to solve. I think it is trying to solve for low levels of wage growth and private investment.

We have seen, as we moved to a cash rate of 0.75 per cent from 1.5 per cent, that the banks have had diminished ability to pass on rate cuts. They are also not necessarily causing any real pick up in credit demand and private investment remains very low. Looking for other ways in which monetary policy can help spur demand for capital is, therefore, a sensible thing to do.

We used to have a sense that the RBA would begin thinking about QE at a cash rate of 1 per cent. It is clear now that the hurdle is lower.